Diocese Seeks Blessing For Luxury Project

CUPERTINO, Calif. — Churches have long put their assets to work by venturing into real estate development, usually building low-income apartment complexes or convalescent homes.

But the Roman Catholic Diocese of San Jose, Calif., is taking creative real estate investment to new heights. Seeking to service a $22 million earthquake-repair loan, the diocese is prepping 208 acres it owns in Cupertino for a planned unit development of luxury homes.

It's a niche of the real estate market more familiar to investment bankers and institutional developers than to churches.

"That is an innovative approach to managing a diocese's assets," said Deacon Chris Baumann, a spokesman at the U.S. Catholic Conference in Washington, upon hearing about the project. "They usually do development projects in low-income housing. But this is a first."

The diocese of San Jose, just south of San Francisco, plans to convert the site of its former St. Joseph's Seminary into 178 luxury homes. About 65 percent of the acreage would be preserved as open space.

Homes would be built over 20 years or more and are tentatively priced at $600,000 each, making the project worth more than $100 million.

The land being developed was part of an endowment made by the archdiocese of San Francisco when it created the San Jose diocese in 1981.

The Cupertino development is not the diocese's first real estate transaction.

A year ago, the diocese sold a parcel of land in downtown San Jose to the Sisters of Mercy, an order of nuns that is using the property to develop 53 low-income rental apartments.

Because the diocese is recruiting outside developers to obtain government approvals for the Cupertino project, do the site preparation, and build and market the homes, it is unlikely to reap much more than one-quarter of the project's total value.

However, the Rev. Michael Mitchell, the diocese's vicar general, said the diocese is likely to remain an owner-investor until the last parcel is sold.

Environmentalists such as the Audubon Society and the Greenbelt Alliance have opposed the diocese's plans.

They say building homes on the land, which has been open space for generations, would violate the region's scenic beauty and disturb the habitats of several species that are at risk.

The rare red-legged frog, which the U.S. Fish and Wildlife Service may soon list as an endangered species, lives on the property. And the seminary building is being investigated to determine whether it supports a species of migratory bats that may also be endangered.

But Mitchell said the project is a logical, legitimate and environmentally unintrusive use of the church's property.

"The land is the diocese's biggest single asset," Mitchell said. "We could grow weeds on it and have people watch it. But we feel we have an obligation to put the assets of the church to work. We thought this (development proposal) was its highest and best use."

Cupertino's city council has yet to give final approval. And the project could be endangered if a city election this November brings into office several candidates who oppose the diocese's plans.

Catholics in the diocese have been lukewarm to the project. A group called OAKS-Organization Advocating Keeping St. Joseph's as open Space-was formed to raise funds to save the seminary, which was built in the 1920s and upgraded in the 1950s.

An OAKS organizer said she became disillusioned at tactics the diocese and its marketing consultants have used in the political arena to garner public support for the project.

"They spent over $1 million on marketing by running public opinion polls and telemarketing postcard surveys that were rather misleading," says Nadine Grant, a Cupertino resident and OAKS member.

She points to a mailer sent to Cupertino citizens that refers to the diocese's development plan as "a once in a lifetime opportunity" to secure the land as open space.

The letter neglects to mention that the city could have opted to make no change in the general plan instead of boosting the number of allowed homesites. That would have preserved 51 more acres of open space than the diocese's plan.

"They presented (the church's proposal) as though this was the only chance to preserve open space," Grant says. "From an ethical point of view, it neglected all the facts."

Mitchell defends the diocese. He notes that $610,000 in payments are due in 1996 on the earthquake loan, and another $5 million in 1997.

"People feel that the land is theirs," Mitchell says. "They have a lot of emotional baggage around that. People have no conception that the church has assets-like anyone else-and has the right and the need to deploy them."